ATO focus areas for tax time 2023
Tax time 2023 is fast approaching and as in previous years, the ATO has provided some insights into the areas it will be focusing on. For 2023 this includes rental property deductions, work related expenses, and capital gains tax. Specifically, the ATO will be targeting loan interest expenses, working from home deductions, and possible capital gains tax where a main residence is also used for income producing purposes. Overall this tax time, the ATO expects that fewer individuals will receive refunds or will receive smaller refunds, and more individuals may have tax to pay.
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Rental properties, work related expenses & CGT under the spotlight
With the end of financial year fast approaching, the ATO has again released the areas it will be focusing on in tax time 2023. As with previous years, it will be prioritising areas where the most mistakes are being made, being rental property deductions, work related expenses, and capital gains tax (CGT). The ATO has identified common mistakes in those areas to assist taxpayers in avoiding pitfalls and potential compliance activity.
Rental properties
In relation to rental properties, a recent ATO review indicated that 9 out of 10 rental property owners are getting their returns wrong, so it is no surprise that this area remains one of the main tax time targets. Common mistakes include rental income not being reported, overclaiming expenses, or claiming improvements to private properties. However, this tax time, the ATO is particularly focused on interest expenses.
The ATO stresses that rental property owners need to correctly apportion any loan interest expenses where a part of the loan is used for private purposes, or where the loan was refinanced and used for private purposes. For example, if you use a part of your rental property loan to buy a car or go on a holiday, the only interest deduction that can be claimed is the interest on the portion of the loan related to producing the rental income i.e. purchasing the investment property.
Further, for those not doing the right thing, the ATO has reminded taxpayers that it recently started a residential investment property loan data matching program that spans the income years 2021-22 to 2025-26. Data obtained from various financial institutions (including the big four banks and their subsidiaries) such as the amount of interest charged and loan repayments will be used to identify discrepancies in returns lodged.
Work related expenses
The other focus area the ATO will be concentrating on is work related expenses. The ATO has reminded taxpayers that from 1 July 2022, there have been changes in the methods used to calculate working from home deductions. Taxpayers can either choose the actual cost method or the fixed rate method, with the shortcut method no longer being available. To use either of the methods, taxpayers will need to keep appropriate records, including the total number of hours worked from home.
ATO Assistant Commissioner, Tim Loh has reminded taxpayers that “…[Y]ou can’t claim for things like coffee, tea, milk and other general household items, even if your employer may provide these kinds of things for you at work.”
CGT
The last area of focus for tax time 2023 is CGT. In addition to the usual disposal of assets such as shares, crypto assets, managed investments and properties, the ATO will also be looking at situations where a main residence or part of a main residence is used to produce income and is then subsequently sold. This applies where taxpayers have rented out all or part of their main residence through traditional means or through the sharing economy (e.g. Airbnb, Stayz, etc.), or where a business is operated from home.
Overall this tax time, the ATO expects fewer individuals to receive refunds or to receive smaller refunds than in previous years, and more individuals may actually have tax to pay. Taxpayers getting behind on their tax debts are encouraged to contact the ATO as early as possible to work out potential solutions and access appropriate support.
Get it right this tax time
If you need help with any of the target areas this tax time, we have the expertise to help you get it right the first time and avoid any potential compliance action. Contact our office today for help with this and any other tax issues you may have.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.